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Opportunity Zones “New for the Brownfields Toolkit” National Webinar Technical Assistance to Brownfields (TAB) Program February 28, 2018
Opportunity Zones“New for the Brownfields Toolkit”
National Webinar
Technical Assistance to Brownfields (TAB) Program
February 28, 2018
Housekeeping• All attendees are on mute. Please use the
integrated audio on your computer or mobile device for sound.
• Please submit all questions using the Q&Afunction on the upper right section. When you submit your questions, please submit your questions to “All Panelists.”
• A recording of the webinar will be available after the webinar, and we will distribute a link to all participants.
• We appreciate your feedback – please respond to the webinar survey.
Technical Assistance to Brownfields
(TAB) Program
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• Free Planning, Environmental and Economic Development expertise
• Directly to local governments, non-profits, and tribal communities
• Webinars, workshops, & E-Tools
Today’s Presenters
Jane Campbell – Finance / Development Perspective. Jane is the
Director of the Washington DC Office of the National Development Council. The NDC assists over 100 communities across America with public/private partnerships, and loans and financing tools, for commercial development, public facilities and low-income
housing. She has an accomplished career in local, state, and federal government, in both elected and appointed positions, including the first woman mayor of Cleveland.
Andy Seth – Overview. Andy is the President of Sustainable Strategies DC, a KSU TAB partner, based in Washington, DC, that helps clients secure resources for community revitalization. Much of his career has involved assisting or directing groups of communities and environmental topics groups, such as the Climate Communities and American Waterfront Revitalization Coalitions, American Rivers, through a number of programs and the Local Government Environmental Assistance Network at ICMA, as well as with the The Ferguson Group and Spiegel & McDiarmid.
Maurice Jones – Local Government Perspective. As Dubuque’s Economic
Development Director, Maurice develops, manages, coordinates, and supervises programs to meet the social, economic, and physical development needs of the Dubuque community. This involves significant coordination, cooperation, and interaction with community groups, and private not-for-profit economic development organizations. His specific responsibilities include economic development, downtown redevelopment, riverfront development.
Opportunity ZonesSpurring Brownfields Revitalization with the New Tax Law
Andrew Seth, Sustainable Strategies DC
February 28, 2018
Today’s Agenda
I. Background on Investing in Opportunity Act
II. Opportunity Zone Basics
III. Opportunity Zones & Brownfields
IV. Opportunity Zone Tax Incentives
V. Designating Opportunity Zones
VI. Creating Opportunity Funds
VII. Next Steps for Community Officials
Also: Perspectives from the Development/Financial
Community (National Development Council) and Local
Government (City of Dubuque, IA)
Background on Investing in Opportunity Act
Bipartisan legislation proposed by Senator Tim Scott (R-
SC) and Corey Booker (D-NJ)
Included in the Tax Cuts and Jobs Act of 2017, which
Congress approved on December 22, 2017
Text of legislation:
www.congress.gov/bill/115th-congress/house-bill/1
Opportunity Zone Basics
Goal – Encourage long-term private
capital investment in low-income
urban and rural communities
Incentive – Tax deferrals on original
capital gains invested in Opportunity
Zones and tax exclusion on new
capital gains achieved from
Opportunity Zone investments
Outcome – Equity share in and
launch of development projects that
may not have traditionally penciled
out
Opportunity Zones & Brownfields
Many contaminated properties
within “highly distressed” Census
Tracts
Big opportunity for brownfields
redevelopment in designated
Opportunity Zones – can help
make previously marginal
projects look more attractive
Brownfields remediation likely to
be considered by the Internal
Revenue Service as a pre-
development cost eligible for
Opportunity Zone investment
Opportunity Zone Tax Incentives
Temporary Tax Deferral – Taxable capital
gains are deferred (until sale of equity share
or December 31, 2026) if investors capitalize
projects in designated Opportunity Zones
Step-Up in Basis – Investors allowed to
exclude 10% of original gain from taxation
with 5-year Opportunity Zone investment and
15% exclusion with 7-year Opportunity Zone
investment
Permanent Exclusion – Any gains from an
Opportunity Zone investment held at least 10
years are excluded from taxation
Opportunity Zone Tax Incentives - Example
Mr. Monopoly sells stock and realizes $1 million in
capital gains that will be taxed.
He invests $1 million in an “Opportunity Fund” that
capitalizes a housing project in a designated
Census Tract. The investment is held for 10 years.
Mr. Monopoly defers all taxes on his initial $1
million in capital gains until 2026.
His basis increases, which enables him to exclude
15% of his original taxable capital gains (from $1
million down to $850,000).
The housing project’s value grows, and Mr.
Monopoly will pay no taxes on any new capital
gains.
Designating Opportunity Zones
Governors may designate 25% of eligible low-income
Census Tracts.
Eligibility mirrors areas that qualify for New Market Tax
Credits:
The poverty rate for Census Tract is at least 20%, or
In the case of a Census Tract not located within a
metropolitan area, the median family does not exceed
80 percent of statewide median family income, or
In the case of a Census Tract located within a
metropolitan area, the median family income for such
tract does not exceed 80 percent of the greater of
statewide median family income or the metropolitan
area median family income.
Designating Opportunity Zones
Some contiguous Census Tracts may be considered –
median family income can not exceed 125% eligible area.
See map and list of eligible Census Tracts:
www.cdfifund.gov/pages/opportunity-zones.aspx
Key deadlines
March 21, 2018 – Governors have 90 days from
enactment to designate Census Tracts as Opportunity
Zones.
April 20, 2018 – Governors may request a 30-day
extension for submitting their nominations.
After submission by Governors, the Treasury Secretary
has 30 days to certify a State’s Opportunity Zones.
Designating Opportunity Zones
Wide discretion among
States on how they will
designate Opportunity Zones.
Some Governors adopting
formal nomination processes,
some States not seeking
input.
Strategic Governors will
designate Census Tracts that
have strong potential to
attract Opportunity Zone
investment over the next
decade.
Designating Opportunity Zones
Criteria:
Ideally geographically concentrated
or contiguous clusters of Census
Tracts.
Existing public and private initiatives
to attract investment and foster
startup activity.
Demonstrated success with New
Market Tax Credits, Promise Zones,
Empowerment Zones, and Renewal
Communities.
Recent layoffs due to business
closures or relocations.
Creating Opportunity Funds
Definition – an investment vehicle that is
organized as a partnership or a corporation
for the purpose of investing in qualified
Opportunity Zone property.
Likely to be established at the local, state,
and national levels.
More guidance required by Treasury
Department – timing to be determined.
Next Steps for Community Officials
Reach out to your State’s economic development office to
determine who is administering the Opportunity Zone
designation process.
Engage developers to identify strong projects that are
ready-to-go but for the lack of financing.
Prepare materials for State that identify priority Census
Tracts with justification for their selection.
Gauge interest of the local financial community in creating
an Opportunity Fund.
Encourage key stakeholders (developers, business
groups, banks, state legislators) to support your priority
Census Tracts.
Contact Information
Andrew Seth
President
Sustainable Strategies DC
(202) 261-9881
Opportunity Zones
HOMES
JOBS
COMMUNITY
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Presented by: Jane Campbell
February 28, 2018
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IRS will release regulations / Open Comment period TBD
State Governors will draw Opportunity Zone Maps and Submit to CDFI Fund.
Phase 1: Investment in Opportunity Act is passed as a provision in the
tax reform legislation .
Phase 2: Setup – The Federal Government is currently developing the
parameters for how program will function ; in conjunction with States who
will make zone designations.
Phase 3: Deployment – TBD Designation of Opportunity Zone Funds,
Rules for Investing
Action to Take Now…ADVOCATE
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• To ensure communities of all shapes and sizes have a stakehold in shaping Opportunity Zones – they should now be lobbying ….
• Governors – to craft opportunity zone maps that can best yield success
as intended by the legislation.
• Members of Congress – to use the full powers of their offices to
influence Treasury to craft regulations that make sense, are efficient, and don’t create any unintended red tape.
• Business Community / Private Sector - to create an education
campaign about Opportunity Zones to spur interest amongst potential fund investors.
What kinds of Projects do Opportunity Zone tax incentives make sense for?
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• A few important things to keep in mind before we dive into the specifics:
• This is an investor incentive, not one that is awarded to individual companies.
• All incentives pertain to the tax treatment of an investor’s capital gains.
• Geared toward new businesses and projects.
• The incentive is market-based—investors will determine how large or small it eventually becomes by how many investable opportunities they identify.
• Capital alone isn’t a strategy. States and localities are still on the hook for other complementary factors that will determine whether Opportunity Zones achieves its maximum potential.
What kinds of Projects do Opportunity Zone tax incentives make sense for?
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• There are three types of business property eligible for investment:
• Original-issue stock of a qualified opportunity zone corporation.
• Interest in a qualified opportunity zone partnership.
• Tangible property used in qualified opportunity zones.
• If the original use does not commence with the O-Fund investment,
then the property must be substantially improved in order to qualify.
• In laymen’s terms, that means there are a lot of investment opportunities:
high-growth startups, main street businesses, real estate, manufacturing
facilities, brownfield redevelopment, entrepreneurship incubators and
accelerators, co-working spaces, rental housing, affordable housing, and
more.
• So-called “sin” businesses are excluded.
Creating Opportunity Zones
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• Feb 8, 2018 – Treasury issued guidance on opportunity zone designation
• Governors designate no more than 25% of eligible low income census tracts as OZ.
• Up to 5% of OZ can be contiguous census tracts if not more than 125% of median income of contiguous tract
• Governors have 90 days from enactment (ending March 21, 2018) to nominate low-income census tracts to be designated as Opportunity Zones.
• Governors may also request a 30-day extension (ending April 20) for submitting their nominations.
• After submission, the Treasury Secretary has 30 days to certify a state’s Opportunity Zones.
• Most important step- get the designation – explore building coalition with other areas of the state
•
52 million Americans (1 in 6) live in economically distressed
communities
• M inorities represent over half the population in distressed communities, compared to only about a
quarter of the population in prosperous ones. Blacks and Native Americans are more than three times as
likely to live in a distressed zip code than they are a well-off one.
• Counties with under 100,000 people are 11 times more likely to be economically distressed than others.
• The rate of new business formation in rural (non-metropolitan) areas has fallen more than twice as
quickly as it has at the national level. In 2014, only 49,000 new businesses formed in rural areas, while
57,000 closed.
DistressScore ColorLegend
ProsperousDistressed
EIG
The Case for Brownfields
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• Brownfield redevelopment is very costly –often more expensive then new construction.
• Opportunity Zones will act as a new investment resource that can be added to the arsenal of federal investment toolkit that communities can utilize.
• Opportunity zones – as intended in the legislation (the regulations will reveal its true flexibility) can be leveraged with our already existing investment tools to enhance finance package.
Treasury guidance allows for Investments in qualified opportunity fund may be eligible for
additional tax benefits
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• New Markets Tax Credits – provide low cost and patient debt while OZ is equity
• Local government may provide tax increment financing
• Housing projects can partner with Low income housing tax credit
• TIFIA and WIFIA investments can be part of an OZ project
• Brownfield remediation dollars can be used as part of a package
• CDBG, HUD 108 compatible
Opportunity Zones and NMTC
• The provision was NOT intended as a replacement for the New Markets Tax Credit (NMTC).
• NMTC was renewed alongside the Opportunity Zones provision as a part of the Tax Cuts and Jobs Act.
• The Opportunity Zones provision is, in fact, complementary to the new markets tax credit.
– The provisions incentivize different sources of capital:
• Equity = Opportunity Zones
• Debt = NMTC
Development of Opportunity Funds
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• Qualified Opportunity Funds (QOF) are defined as investment vehicle organized as a partnership or corporation for purpose of investing in Qualified Opportunity Zone property
• QOF must make 90% of investments in the OZ
• Funds must be certified by IRS ( Treasury)
• Treasury has not issued guidance on certification process.
Timeline and Open Questions
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• IRS is busy with tax reform implementation
• In a speech last week in Cincinnati, President Trump obliquely touted the QOZs as a feature of the tax overhaul. In another sign that things may be moving forward with the program soon, the IRS included it in their recently updated priority guidance plan for the next year.
• Treasury has said that rules will be forthcoming – June 30, 2018
Open issues include:
– size of the fund,
– geographic reach,
– number of funds that can be certified,
– fiduciary responsibility of fund manager
– impact of investment on community served – job creation measure?
How will investment decision be likely made?
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– Unable to be sure until the Treasury issues rules
– Investors will be looking for rate of return on equity investment
• High growth businesses
• Transformational real estate investments with increased value
– Brownfield may cause current value to be low, remediation increases value
– Local government will have to make the case for increased value
– Clear community plans & other investment incentives
Contact
Jane L. Campbell
Director of the Washington Office
NDC
202-400-3680
NDConline.org
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History and Demographics Oldest city in Iowa Population – approximately
60,100 Located on the banks of the
Mississippi River Formerly a fur-trading post, lead
mining community, manufacturing center, and meatpacking hub
Significant brownfields contamination
Strong sustainability and historic reuse ethic
Dubuque … A Little Background
Economic Challenge –
Workforce
2.4% unemployment
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2/23/18Gov. Reynolds, Lt. Gov. Gregg
announce applications now being accepted for Opportunity Zones
(DES MOINES) – Gov. Kim Reynolds and Lt. Gov. Adam Gregg, along with the Iowa Economic Development Authority, announced an invitation for cities, counties and communities in eligible areas to apply to be considered for designation as Opportunity Zones
Cities, counties and communities with eligible LICs in Iowa have been invited to apply by completing an application form available on line . All applications must be submitted to [email protected] by 5 p.m. CST on March 19, 2018.
State of Iowa Anticipated Process
and Timeline
•Application and Instructions sent via email to all eligible local
Iowa government offices (239 eligible census tracts): February 23,
2018
•Submit applications to [email protected] by:
March 19, 2018
•Office of the Governor submits Iowa nominations to the U.S.
Department of the Treasury for review by: April 21, 2018
Official Opportunity Zones designations will be determined by the
U.S. Department of the Treasury and announced by the Office of
the Governor
What criteria is being used to review the Iowa application?
• Community vision
• Economic hardships
• Past successes
• Average unemployment rate
• Community’s plan if awarded Opportunity Zones designation
Eligibility Requirements outlined:
The zones will be designated in tracts that meet the Treasury Department’s qualifications for New Market Tax Credits. These are U.S. Census tracts where the poverty rate is• 20 percent or greater and/or family income
is less than 80 percent of the area’s median income.
The governor of each state is permitted to designate 25 percent of its “low income census tracts” (LIC) as Opportunity Zones, subject to approval from the U.S. Department of the Treasury. Iowa has 239 eligible LICs; 60 will be nominated as Opportunity Zones
City of Dubuque Approach/ Next Steps:
Identification of eligible Census Tracts:
20 percent or greater and /or family income less than 80 percent of
areas median income. (Urban Renewal Areas )
Identification of Potential “shovel ready projects” within the
eligible census tracts.
• a through review of pipeline development projects within the tracts that
could be considered a “ catalyst “project or potential funding gaps may
exist
Creation of a Dubuque Opportunity Zone Fund
Current discussion with local financial institutions on setting up a local
“O Fund” to attract local patient capital.
Current Economic Development Programs
Within Eligible Census Tracts
Urban Renewal (TIF)
Urban Revitalization
Downtown Rehabilitation
Grants (Façades)
Downtown Housing
Incentives
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90-acre campus on former brownfield
$400 million public/private investment
PARTNERING FOR A BETTER DUBUQUE
Replicating the ModelOf Public/ Private Investment
Partnerships past success
Reclaiming Dubuque’s Waterfront:Replicating the Model
Major Renewal
The North Port Today
Photo montage of
North Port after
revitalization
$30 million
Platinum Hospitality
Group
200 rooms
25,000 sq. ft. Indoor
Waterpark
Grand Harbor Resort
& Waterpark
Encouraging Private Investment:
$12 million, 4-story
office building in
Port of Dubuque
Flexsteel Industries
World Headquarters
PARTNERING FOR A BETTER DUBUQUE
Over 1 million square feet
28 buildings covering 17 city
blocks
Estimated $200 million
private/public investment over
10 years
A neighborhood where people
can live, work and play
Historic Millwork District
Revitalization
South Port Concepts
Important Steps Identifying other potential
investment sites
Creating a Marketing Strategy
around various projects
Setting up a local Opportunity
Fund
Planning, planning, planning
Strategy for Municipal
investments
Relationships at all levels
Celebrating successes
Keys to Success
Photo of North Port
after revitalization
www.cityofdubuque.org
Chat Questions? (and Speaker Points of Contact)
• Andy Seth, Sustainable Strategies DC: [email protected]
• Overview of Opportunity Zone Tax Incentives
• Jane Campbell, National Development Council: [email protected]
• Finance/Development Perspective
• Maurice Jones, City of Dubuque: [email protected]
• Local Government Perspective
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Technical Assistance to Brownfields (TAB) Program
• By March 7th, limited information about designating Opportunity Zones
will be available on the KSU TAB web site at:
www.ksutab.org/Resources (key Word Search Opportunity Zones)
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• For other technical assistance requests please contact your Regional TAB provider (please see next slide)
• Thanks for attending!
TAB Assistance ProvidersNew Jersey Institute of Technology (NJIT)—EPA Regions 1, 3, & 4
Colette Santasieri | 973-642-4165 | [email protected]| www.njit.edu/tab
Kansas State University (KSU)—EPA Regions 5, 6, 7 & 8
Blase Leven | 785-532-0780 | [email protected] | www.ksutab.org
Center for Creative Land Recycling (CCLR)—EPA Regions 2, 9 & 10
Erica Rippe | 415-398-1080 | [email protected] | www.cclr.org
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